MARYLAND CONDOMINIUMS MAY BE LIABLE FOR FALSE
OR MISLEADING INFORMATION IN RESALE CERTIFICATES

The Maryland Court of Appeals recently ruled that a Maryland
condominium association may be liable to the purchaser of a condominium unit based upon
false or misleading information in a resale certificate prepared by the condominium.

In Swinson v. Lords Landing Village Condominium, the owner of a
condominium unit contended she should not have to pay a special assessment for the cost of
wood and painting repairs to common elements because the Condominium allegedly furnished
false and misleading information in the resale certificate regarding such repairs.

The resale certificate provided by the Condominium stated that the
Condominium had no knowledge of any violation of the health or building code with respect
to the common elements. When the resale certificate was issued, the Condominium had been
cited by Prince George's County for an alleged violation of the county housing code in
connection with the need to replace rotted and exposed wood.

The resale certificate also disclosed the existence of litigation
against the condominium's developer concerning common area defects, including
deteriorating wood and water penetration problems. The certificate identified the case
number and invited prospective purchasers to review the court file. No information was
provided about the then-current status of the litigation.

Although the trial court ruled that the resale certificate provision of
the Maryland Condominium Act imposed no liability on the Condominium for providing
erroneous or incomplete information, the Court of Appeals concluded that the Condominium
did have potential common law tort liability to a prospective purchaser for fraudulent or
negligent misrepresentations. The court reasoned that the Condominium had a statutory duty
to a unit owner to provide resale information for the owner to transmit to a prospective
purchaser and, therefore, a duty of care to furnish accurate and non-misleading
information extended to the prospective purchaser as well.

However, the appeals court concluded that the information in the resale
certificate was not false or misleading. With regard to the pending housing code
violation, the court found that the required resale certificate disclosures related only
to known violation of the health or building codes and not to violations of the housing
code. The court made the distinction that building codes specified construction
requirements, while housing codes principally concerned the maintenance and habitability
of residential structures.

With regard to the pending litigation against the developer, the court
found that disclosure of the existence of pending litigationnot the status of the
litigationis all that is required to be disclosed.

Therefore, although the court found a condominium has potential
liability for making resale certificate disclosures which are false or misleading, the
court concluded that the Lords Landing Village Condominium had made no fraudulent or
negligent misrepresentation in the resale certificate in this instance.

OWNER OCCUPANCY RESTRICTIONS
UPHELD BY DISTRICT OF COLUMBIA APPEALS COURT

An amendment to the bylaws of a
District of Columbia housing cooperative which required 90 percent owner occupancy was
upheld by the District of Columbia Court of Appeals in Burgess v. Pelkey.

The proprietary leases between the cooperative and coop owners had
allowed subleasing and contemplated that the coop bylaws and rules might be amended in the
future. The original bylaws provided that amendments shall not be made
"retroactive".

When the bylaw amendment requiring 90 percent owner occupancy was
adopted, any existing subleases were permitted to continue, but no new subleases were
allowed if the new sublease would result in less than 90 percent owner occupancy for the
coop.

A coop owner, who had previously sublet his unit, was denied the right
to a new sublease. After the owner sold his coop ownership, he filed suit, contending that
refusal to allow him to sublease his unit violated the provisions of the proprietary lease
and bylaws.

However, the appeals court concluded that the cooperative's refusal to
allow new subleases of units was applied prospectively -- not retroactively -- because no
sublease in existence at the time of the bylaw amendment was affected. The court also
concluded that the 90 percent owner occupancy requirement was enforceable as it was not
unreasonable, subjective, or discriminatory. It also noted that an amendment to the coop
rules imposing a two-year residency requirement on new owners was not unreasonable.

The Maryland Court of Special Appeals recently ruled that the board
of directors of a Prince Georges County commercial condominium improperly refused to
use insurance proceeds to pay for repairs to a damaged unit.

In Moshyedi v. Annapolis Road Medical Center Condominium, the
unit owner had sustained substantial damages to his unit from flooding. Insurance proceeds
of over $29,000 were sent to the condominium for repair of the unit. However, the
condominium board of directors instructed the contractor not to completely repair the
unit, but only make those repairs that were necessary to prevent further damage to the
unit or the condominium common elements. This action was taken by the board because the
unit owner was delinquent in his payment of assessments. As a result, the condominium
retained approximately $15,000 of the insurance proceeds intended for repairs to the
damaged unit.

Repairs to the unit were completed by the owner's tenants. When the
condominium filed suit against the owner for unpaid condominium fees, the owner
counter-sued the condominium for the cost of completing repairs to the unit.

The Court ruled that the condominium bylaws imposed a fiduciary duty
upon the Board of Directors with respect to disbursement of insurance proceeds paid to
repair and restore damaged units.

The appeals court concluded that a condominium's duty to repair a unit
and pay for such repairs with insurance proceeds is independent of the unit owner's
obligation to pay assessments. The condominium may not withhold repairs because of a unit
owner's failure to pay assessments. The court ruled that the board's "duty to perform
repairs is mandatory and unconditional and its refusal to do so is a breach of its
fiduciary duty".

Therefore, the unit owner was entitled to recover the costs of
completing the repairs.

The United States
District Court for Maryland has ruled that there was no basis for a fair housing suit
filed against a Burtonsville, Maryland homeowners association and its management company.

In Doka v. Greencastle Lakes Community Association, a homeowner
and a fair housing civil rights organization alleged that a homeowners association and its
management company had violated federal fair housing laws by not taking action to respond
to alleged racially motivated harassment committed by one homeowner against another
homeowner on the homeowner's property.

The trial court concluded that there was no legal support for
association liability, and dismissed the suit before trial. Finding that the association
had no obligation to take action in the dispute between neighbors, the court noted that
the alleged conduct did not occur on community common areas subject to control by the
association, and that the association's covenants and bylaws did not contain provisions
requiring association action in neighbor-to-neighbor disputes.

Additionally, the court found there was insufficient evidence to
establish fair housing violations based upon alleged creation of a hostile housing
environment or upon alleged disparate treatment of the complaining homeowner.

The court also dismissed the suit against the management company,
noting that it had no authority to resolve disputes among homeowners under its contract
with the association.

Lastly, the court ruled that the homeowner alleged to be engaged in the
harassing conduct could not be held liable under the federal fair housing laws because
that homeowner had no power to deny the sale or rental of the complaining homeowner's
property or to otherwise make the property unavailable for use.